The federal telecommunications regulator has found a way to put a smile on the faces of many rural and urban residents.

The Canadian Radio-Television and Telecommunications gave approval Tuesday for large phone companies to use $421.9 million set aside in special deferral account funds to bring broadband to 287 rural and remote communities in five provinces in central and western Canada over the next four years.

That won’t use up all of the money in the special fund, so the commission said the telcos have to rebate the difference of $310.8 million to their urban customers. The rebate must be credited within the next six months and will range from approximately $25 to $90 per subscriber.

“Today’s announcement is a positive solution for Canadian consumers,” commission chair Konrad von Finckenstein said. “Subscribers of the major telephone companies in urban areas will enjoy a rebate on their home telephone service. And residents in hundreds of rural communities will soon be able to take advantage of the many social and economic benefits broadband Internet access provides.”

In expanding their rural networks, BCE Inc.’s Bell Canada and Bell Aliant Regional Communications will connect 112 communities in Ontario and Quebec; Telus Communications Company will connect 159 communities in British Columbia, Alberta and Quebec; and MTS Allstream Inc. will connect 16 communities in Manitoba.

The most controversial of the applications came from the Bell group, which originally wanted to offer broadband to 112 communities in Ontario and Quebec either through customers’ landlines via DSL technology, or wirelessly using a service it shares with arch rival Rogers Communications Inc. called Inukshuk.

However, Bell’s application was fought by Rogers, Quebec cablecoVideotron Ltee. and wireless startup Wind Mobile on several grounds. Rogers argued Bell’s proposed switch to HSPA was “in utter violation” of previous CRTC decisions, while Videotron – which is just finishing construction and tuning of its province-wide HSPA–based wireless network — alleged the change was an abuse of process.

The commission found that the Bells’ proposed HSPA service wouldn’t have the variety of options they offer urban customers. The Bells were proposing rural areas would only be offered a 2 Mbps download service for $31.95 a month, while in customers in Ontario cities could get download speeds of up to 6 Mbps, and up to 7 Mbps in Quebec.

Bell itself acknowledged that the average monthly usage of wireless and wireline subscribers is “well above the 2 GB cap it proposed for residents in the 112 communities.

As result, the commission said, Bell’s HSPA proposal didn’t meet the standards it set out for using deferral funds. The conditions include offering comparable services to the ones provided in urban areas in terms of rates, terms and conditions, upload and download speeds, and reliability.

The commission also chopped $100 million from the $406 million the Bells said they will need in deferral funds to pay for expanding wireline broadband to the 112 communities.

Iain Grant, managing director of the Montreal-based SeaBoard Group, a telecommunications consultancy, found that part of the decisions “curious.”

“The new way of reaching people who aren’t in core communities is going to be wireless much more than it is going to be DSL,” he said in an interview.

“The commission is spending 2002 dollars [the year the deferral accounts were set up] on 2002-type solutions,” he complained.

In a statement Bell said that it’s “unfortunate that the CRTC has denied customers in these rural and remote communities access to the latest broadband network technology and advanced services.” Technology choices, it said, should be left to service providers.

“We are considering all our options,” the statement added, a hint it might appeal to the Federal Court or the cabinet.

Telus spokesman Shawn Hall said the phone company, which services B.C. and Alberta, is looking forward to connecting the 159 communities on its list. Among those in B.C. to get broadband next year will be Appledale, Beaver Valley, Canoe Lake, Christina Lake and Becker Lake.

“It is unfortunate,” Hall added, “that the commission reduced the amount we can spend on connecting communities by about $20 million, which will make it challenging for us to serve all areas.”

Telus had about $163 million in its deferral account. In 2006 it proposed giving $34 million of that in rebates to urban subscribers, but the CRTC raised that to $54 million. That leaves $109 million for rural broadband expansion.

Unless the commission’s decisions are appealed, the rulings end a controversial policy strategy by the regulator.

The deferral accounts were initially ordered as a way of funding competition in local phone markets. Instead of reducing rates for local telephone service in urban areas, the telcos placed surplus funds collected from urban consumers into the accounts.

The commission later decided the monies should be used to extend broadband Internet services to unserved and underserved communities and to improve accessibility to telecommunications services for persons with disabilities. Any extra funds were to be returned to customers in urban areas.

As of May 31, 2010, the deferral accounts held $770 million (including interest). Of this amount, $310.8 million will be rebated to customers, $421.9 million will be spent on broadband services and $35 million has already been allocated to accessibility initiatives. The remaining balance will go toward the administrative costs of the consumer rebate.

Currently a freelance writer, I'm the former editor of ITWorldCanada.com and Computing Canada. An IT journalist since 1997, I've written for several of ITWC's sister publications including ITBusiness.ca and Computer Dealer News. Before that I was a staff reporter at the Calgary Herald and the Brampton (Ont.) Daily Times.